The 50/20/30 Rule for Minimalist Budgeting

Saving Minimalist-Guide-to-Budgeting-in-Your-20s

Budgets are more than just paying your bills on time—a budget is also about determining how much you should be spending, and on what. The 50/20/30 rule, also called the 50/30/20 budget, is a proportional guideline that can help you keep your spending in alignment with your savings goals.

Adults—especially young adults just starting out in life—can benefit greatly by following the simple principles set forth by this budgeting system. When you know how to achieve a balanced budget, you can take the next steps to further customize this rule around your own unique expenses and goals.

The 50/20/30 rule can help twentysomethings start sorting out the complicated world of personal finance. Make an effort to get into this habit, and budgeting will be a far simpler task throughout your life. Sure, you can make adjustments with a tweak here and a nudge there, but by staying close to the core concept of this budgeting system, you’re guaranteed to gain financial ground, rather than lose it.

50% of Your Income – Essentials

To begin abiding by this rule, set aside no more than half of your income for the absolute necessities in your life. This might seem like a high percentage (and, at 50 percent, it is), but once you consider everything that falls into this category it begins to make a bit more sense.

To be clear, your essential expenses are those you would almost certainly have to pay, regardless of where you lived, where you worked, or what your future plans happen to include. In general, these expenses are nearly the same for everyone and include housing, food, transportation costs and utility bills. The percentage lets you adjust, while still maintaining a sound, balanced budget. And remember, it’s more about the total sum than individual costs. For instance, some people live in high-rent areas, yet can walk to work, while others enjoy much lower housing costs, but transportation is far more expensive.

20% of Your Income – Savings

The next step is to dedicate 20 percent of your take-home pay toward savings. This includes savings plans, debt payments and rainy-day funds—things you should add to, but which wouldn’t endanger your life or leave you homeless if you didn’t. That’s a bit of an oversimplification, but hopefully you get the gist. This category of expenses should only be paid after your essentials are already taken care of and before you even think about anything in the last category of personal spending.

Think of this as your “get ahead” category. Whereas 50 percent (or less) of your income is the goal for essentials, 20 percent—or more—should be your goal as far as obligations are concerned. You’ll pay off debt quicker, and make more significant strides toward a frustration-free future by devoting as much of your income as you can to this category.

The term “retirement” might not carry a sense of urgency when you’re only 24 years old, but it certainly will become more pressing in decades to come. Just keep in mind the advantage of starting early is you will earn compounding interest the longer you let this fund grow.

30% of Your Income – Personal

The last category, and the one that can make the most difference in your budget, is unnecessary expenses that enhance your lifestyle. Some financial experts consider this category completely discretionary, but in modern society, many of these so-called luxuries have taken on more of a mandatory status. It all depends on what you want out of life, and what you’re willing to sacrifice. The reason that this category accounts for a larger percentage than your savings is because so many things falls into it.

These personal lifestyle expenses include items such as your cell phone plan, cable bill and trips to the coffee shop. If you travel extensively or work on-the-go, your cell phone plan is probably more of a necessity than a luxury. However, you have some wiggle room since you can decide upon the tier of the service you’re paying for. Other components of this category include gym memberships, weekend trips and dining out with your friends. Only you can decide which of your expenses can be designated as “personal,” and which ones are truly obligatory. Similar to how no more than 50 percent of your income should go toward essential expenses, 30 percent is the maximum amount you should spend on personal choices. The fewer costs you have in this category, the more progress you’ll make paying down debt and securing your future.

50/20/30 Budget Rule Infographic: 50% Essentials, 20% Savings, 30% Personal

Establishing good habits will last a lifetime. You don’t need a high income to follow the tenets of the 50/20/30 rule; anyone can do it. Since this is a percentage-based system, the same proportions apply whether you’re earning an entry-level salary and living in a studio apartment, or if you’re years into your career and about to buy your first home.

A note of caution, though: Try not to take this rule too literally. The proportions are sound, but your life is unlike anyone else’s. What this plan does is provide a framework for you to work within. Once you review your income and expenses, and determine what’s essential and what’s not, only then you can create a budget that helps you make the most of your money. Years from now, you can still fall back on the same guidelines to help your budget evolve as your life does.

Mint offers budgeting software that makes it easy to live in accordance with the 50/20/30 rule and help you live life to its fullest. After spending just a little bit of time determining which of your expenses fall into which category, you can create your very first budget and keep track of it every day. And when your situation undoubtedly changes, Mint lets you adjust so your budget can change with you.

Sign up for your free account today, and make this the year you build a strong foundation for your future.


Comments (52) Leave your comment

  1. Concise, practical, and well said!! Thank you for writing this article and not making it so lengthy that it became cumbersome . I was encouraged to create my own budget and see what happens.

  2. I use Mint to track my expenditures but I wish it allowed users to group budget categories under “essential,” “personal,” and “savings.” It is useful to know that I spend X on “beauty” and Y on “wining and dining” but unless the app can sum those as a percentage of my calculated monthly “personal” budget, I’m not gaining as much information as I would hope to…

    1. I think the app doesn’t have this option but when you open Mint on the web you can edit, add, and modify the categories and subcategories.

    2. I do find it ironic that Mint’s tool doesn’t even have the functionality to instrument their own advice.

  3. If I have 5 credit cards and pay them all off, should I close 3? If I close 3 will this negatively effect my credit score?

    1. Yes it will negatively effect your credit. Instituition look at your ioverall credit lines available to you and factor those limits into your credit worthy score….( a trick of mine…20plus years! ) is to rotate which card I use dependinging on opening statement and closing statement date. If I want to make a purchase, I look at the ” closing date ” of my three cards to see which will put off the bill due date furthest away. That way it falls into the billing cycle date for the next month. Ex: my chase closes on the 3rd of may… if I wait to purchase tile the 4th it will be two months before that bill is due. Does that make sense?

  4. The old fashioned rule was ten percent of your income goes into savings first. Then you must manage on the rest. I found this easiest to do when the employer takes the ten percent first and puts it into a pension plan. Some employers also have matching funds, and it is wise to take advantage of that if possible.

  5. I work in the 401k industry. 1 out of 3 participate in it. Some even pass out on their employers match (free $). 20% seems a bit high but would certainly be nice to do so.

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